Ministers win vote to cap rise in state benefits at 1% until 2016 despite calls move will hit 'strivers'

The Government has won a vote over plans to limit increases in state handouts to one per cent for each of the next three years after heated exchanges with Labour MPs.

A Labour bid to block the bill and insist on a ‘compulsory jobs guarantee’ was defeated by 328 votes to 262, a majority of 66.

Benefits have historically risen in line
with the rate of inflation – known as ‘uprating’ - and increased by more
than five per cent in 2012-13.

Labour today voted against plans to cap increases in welfare handouts at one per cent for the next three years. But some Labour MPs believe Ed Miliband (right) and Ed Balls (left) are wrong to oppose the cap

Critics of the current system argue
that benefits have therefore increased at a faster pace than average
wages, meaning that those out of work have seen incomes grow faster than
those in employment.

But Labour branded the plan a ‘strivers'
tax’ as 68 per cent of households caught by the below inflation rise in
benefits were in work but receiving welfare handouts to supplement their income.

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And former Liberal Democrat minister
Sarah Teather warned attacks on the poor could lead to the
‘fragmentation’ of society.

But Work and Pensions Secretary Iain Duncan
Smith accused Labour of tying working families into the benefits system
and ‘buying votes’ by increasing handouts.

He said: ‘They think that helping
people is about trapping more and more people in benefits. What is
really interesting is that under the tax credit system, nine out of ten
families with children were eligible for tax credits.

‘This went in some cases up to over £70,000 in earnings. What a ridiculous nonsense they have created.’

The changes were announced by
Chancellor George Osborne in last month’s Autumn Statement, but need
legislation in order for them to be implemented.

The cap will apply to Jobseeker’s Allowance, Employment and Support Allowance, Income Support and elements of Housing Benefit.

It will also apply to maternity
allowance, sick pay, maternity pay and paternity pay as well as the
couple and lone parent elements of the working tax credit and the child
element of the child tax credit.

Former home secretary Jacqui Smith said it will let the Tories 'paint us as a party which cares more about those unwilling to work than those struggling in work'

Labour had said it would vote against the plans, saying six out of ten people hit by the changes will be in work.

However the influential think tank the
Institute for Fiscal Studies yesterday released figures suggesting that
workers will lose less than those who live entirely on benefits.

The IFS said 7million workers would
lose an average of £165 a year, while 2.8million without a job will lose
£215 a year in 2015-16 – a £50 bigger hit to those who don’t work.

Ministers say a working couple will
also see their income tax cut by £1,200 as a result of changes to the
personal allowance, which come in from April, far outweighing the losses
to tax credits.

But the IFS also revealed that the proportion of those hit by the changes would fall far more heavily on the workless.

While nine in ten workless households
will see their entitlements reduced, 3million of the 7million working
families hit will be affected only by a cap in rises to child benefit
and only 4million will lose out as a result of other changes.

If just working tax credits are counted, three out of ten people in work will lose out.

Meanwhile the Women’s Budget Group released analysis by Howard Reed of Landman Economics suggesting that the poorest ten per cent of households will lose an average of 1.9 per cent of their weekly income, while the richest ten per cent will lose nothing.